Getting Warmer

After months of talking about the weather, lawmakers are finally doing something about it. But their actions could set up a showdown among business groups and hit consumers hard.

A Senate panel Thursday approved an ambitious plan to establish a market-based mechanism to curb global warming, marking the first time a Congressional body has voted in favor of mandatory cuts in greenhouse gases.

The measure, sponsored by Sens. Joseph Lieberman, I-Conn., and John Warner, R-Va., would reduce greenhouse gas emissions to below 1990 levels by 2020 by capping them at government-set levels and allowing companies to trade (or buy and sell) pollution credits. But the Lieberman-Warner bill isn't the only "cap-and-trade" proposal floating around on Capitol Hill these days, so why is it making waves?

"What's different about this one compared with [the others] is that a very large business constituency is lobbying for it, rather than against it," says Tony Kreindler, a spokesman for the green group Environmental Defense, which supports the bill.

He's talking mainly about the United States Climate Action Partnership, a broad coalition of conglomerates, environmental organizations and businesses including
DuPont
,
ConocoPhillips
,
FPL Group
and
Ford Motor Co.
. Last week the group sent a letter to Lieberman and Warner, generally voicing support for their proposal.

Who's not on board? Most of the nation's largest polluters of carbon dioxide, including energy companies
American Electric Power
,
Southern Co.
and
Xcel Energy
. AEP supports a more moderate proposal by Sens. Jeff Bingaman, D-N.M., and Arlen Specter, R-Pa., that would reduce emissions to 2006 levels by 2020. Neither Southern nor Xcel favor mandatory caps, noting that it would cause a spike in electricity prices for consumers.

That much seems to be certain. On the other side of the Hill Wednesday, Congressional Budget Office Director Peter Orszag told a House committee that simply giving companies emissions allowances could result in "windfall" profits for firms that rely heavily on fossil fuels.

"The reason is that the cap-and-trade program would still result in higher prices for consumers and households but would not impose additional costs on firms," he said in his prepared testimony.

However, Orszag also said the annual value of emissions allowances by 2020 could be as much as $300 billion. And if companies are forced to buy their allowances, they're not going to swallow the costs without passing them on to customers. Xcel has estimated that even a modest cap-and-trade program could raise a family's electric bill by more than $350 per year. Some energy lobbyists say that under the Lieberman-Warner bill, this figure is likely to top $1,000 or more annually.

Nonetheless, because of the heavyweights behind the Lieberman-Warner plan, it will undoubtedly become the blueprint for climate change legislation to be put in place in 2009. (The presidential election will prevent anything from happening next year.)

"It's been blessed by the leadership as the vehicle they see taking to the Senate floor," says Alden Meyer, director of Strategy and Policy for the Union of Concerned Scientists, referring to Senate Environment and Public Works Committee Chairman Barbara Boxer, D-Ca., and Senate Majority Leader Harry Reid, D-Nev.

Maybe so. But it doesn't seem to be cheap for voters who pay electric bills. And that will ultimately determine just how palatable climate change legislation really is.